What Happened?
Shares of smart security company Arlo (NYSE: ARLO) jumped 10.3% in the morning session after the company reported stronger-than-expected second-quarter financial results and provided a mostly optimistic outlook. The smart security company posted second-quarter revenue of $129.4 million, beating Wall Street's expectations, while its adjusted earnings of $0.17 per share also surpassed analyst estimates. The quarter highlighted a significant improvement in profitability, with the company's operating margin reaching 1.5%, a substantial increase from negative 9.3% in the same quarter last year. Looking ahead, Arlo projected third-quarter revenue of $138 million at the midpoint, which was above analyst forecasts, although its earnings per share guidance for the upcoming quarter missed expectations. Investors appeared to focus on the strong top-line performance and improved margins, driving the stock higher.
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What Is The Market Telling Us
Arlo Technologies’s shares are very volatile and have had 20 moves greater than 5% over the last year. But moves this big are rare even for Arlo Technologies and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 9 months ago when the stock dropped 26% on the news that the company reported disappointing third-quarter earnings. Its revenue guidance for the next quarter missed expectations, and its EBITDA fell short of Wall Street's estimates. Sales growth was modest, with product revenue declining by 4% year-on-year despite a push in service-related revenue, which now represents nearly 50% of the total revenue mix. Profitability was also under pressure as declining hardware margins were only partially offset by gains in high-margin services. Furthermore, the company observed consumer demand shifting towards lower-priced products, prompting management to adopt aggressive promotional strategies to drive volume ahead of the holiday season. Overall, this was a weaker quarter.
Arlo Technologies is up 60.8% since the beginning of the year, and at $17.64 per share, has set a new 52-week high. Investors who bought $1,000 worth of Arlo Technologies’s shares 5 years ago would now be looking at an investment worth $2,939.
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